A Week-to-Week Personal Budget
It's all about control
The only reason I've ever fallen behind financially was because I wasn't keeping track of what I was doing. I didn't have control of what was going on with my money. In this case, knowledge is control. Knowing how much money you have, and for what, gives you the control you need to stay "in the black". NOT knowing leads to forgetting: forgetting what you've already purchased, forgetting that big trip to Target or Walmart 3 days ago, forgetting how much you've spent over the past 4 days, etc. All this forgetting leads to guessing: guessing how much money you have left, guessing how much you've spent, and assuming that you have enough, when you're not really sure.
All of that forgetting and guessing comes crashing down when your account becomes overdrawn, and when you finally see how much more you've spent than you thought, and when you see how much less is left than you thought. This is when you start to feel the lack of control. It can make you feel angry, like a failure, depressed, stressed, distraught, hopeless, or even resigned (to the "fact" that you'll always be broke).
But it doesn't have to be that way! Getting back that control is not always easy, but it is always worth it!
Conventional Advice On Getting Started
One of the more common approaches I've seen for getting started on a budget is to gather all of your receipts, pay stubs, statements, and bills for the past 2 or 3 months (because, of course, we should be budgeting by the month, right?), then, basically, sit down and analyze it all.
Put it all into a spreadsheet or some other tool and group everything into categories. Categorize allllll of your purchases and figure out what is being spent on what each month (there's that month again). The recommendation is to choose categories that work for you (good advice). The more elaborate examples out there will have you using upwards of 30 or 40 categories, organized into related groups.
Usually, there are also aspects of "paying yourself first", such as setting aside some amount for retirement, education for your kids, "emergency fund", etc.
Let's get real, already...
How many of us have the time to go through a month's worth of transactions? (*crickets*, I assume) How about TWO OR THREE MONTHS WORTH??? Seriously? That sounds like a couple days of work ahead of you. Have fun!
In my opinion, these kinds of strategies are out of touch with every-day people. I truly feel that this initial trudgery through past transactions is a deal-breaker for many. This task alone is so daunting, that folks will either put it off or keep looking for something simpler.
We All Live Week-to-Week
Most of the personal budgets out there will try to get you to live by the month. You'll have a monthly budget. You'll track how much you spend on things every month. But how many of us live that way? Don't most of us go grocery shopping every week. We do errands on the weekend. Our lives are oriented around the work week.
So, why would we want to track our spending on a monthly basis? I just don't get it. I'm not a company. I don't need to report my monthly revenue to my board of directors. I don't think about my quarterly earnings. Today's Friday, and I need to go buy groceries tomorrow, regardless of what day of the month it is.
A spending budget should be compatible with the way you live. If you live week to week, then your budget should do the same.
Getting started on a budget should be easy. It should take you a few hours to get set up initially. It won't be perfect; how could you know what works best for you when you're only just getting started? You will be adjusting things as you go, so lets just start with something basic, and expect to have to change it along the way.
You'll need to figure out where you want to keep your budget information. This is where software can help. A lot of people swear by Quicken or Microsoft Money. Many others are happy with a spreadsheet. I prefer the spreadsheet route (for my own reasons), but felt the need to automate some of the more mundane, time-consuming tasks associated with updating it on a regular basis. If you're comfortable working with spreadsheets, this might be a good way to get started. There's nothing stopping you from switching down the road. You'll be adjusting it along the way anyway, right?
It Takes Me 10 Minutes to Update My Budget
If you are expecting to update your budget each month for the whole month (as per conventional advice), then the best of luck to you! I hope you don't have kids running around, chores, errands, or anything else demanding your attention, because you'll probably need about 3 to 4 hours to get through it all.
I spend 10 minutes each week on my budget (my "checkbook"). Sometimes I need to find a couple of receipts, and occasionally we need to rearrange some money, or deal with something that doesn't add up. But, it almost NEVER takes more that 30 minutes each week to "do the checkbook".
How to get Started
There are two aspects to getting on a week-to-week budget: getting the tools, monthly bills, and weekly spending.
Get the tools
- Pick a tool for tracking your transactions. I use an Excel spreadsheet, but there are other commercial tools for this purpose that some people like, such as Quicken, and Microsoft Money.
- Get separate checking accounts for paying bills and for spending. Getting them at the same bank will make transferring money between them easier. And transferring between banks usually costs money, anyway.
- If you don't get paid weekly, set up automatic weekly transfers to your spending account and your bill-pay account.
- Figure out how much of your weekly income needs to go to bills. You should pay your monthly bills with 4 weeks of pay.
- Set up automatic bill payments. Pay the same thing every month. If that means paying a bit more than the usual minimum, then so be it. Once this is set up, you will be so happy to be rid of the chore of paying bills manually.
- Stop using all credit cards. This is KEY. All of your spending should be from a single account, and your monthly bills need to be as consistent as possible. This will make things much simpler in the long run when it comes to managing your weekly spending budget.
- Work with what's left. What you have left after regular payments are allocated is what you have for spending.
- Choose some spending categories. Here is an example set to start out with. Don't go crazy trying to come up with a comprehensive list; it's impractical. These are the categories I've been using for years. They are straight forward, and it's usually easy to match up transactions with a category.
Auto & Home
- Divide your spending budget into your categories. Take guesses as to how of what's left after bills will be used from each category. You will be wrong. So, make sure there is something going into the "buffer" category.
- Pay for everything with your debit card. This will allow you to track everything later from one place; that means less work for you. Cash is the monetary black hole. Keep a little bit of cash on hand for small things, but most things should be purchased in a trackable way.
- Live your life for the week. Use the amounts you came up with as guidelines, but be reasonable. They were just guesses.
Do What Works For You
I'll be the first to tell you that I'm not a financial expert, nor a professional financial advisor, or anything of the like. But I can tell you that I've used a credit card twice in the past 2 years, and in that time I haven't accumulated any new debt. I've actually been able to save!
This approach works extremely well for me, a regular guy who has his fair share of struggles with money. I only assume that I'm not alone. :)
Don't default to the boiler-plate budgeting bologna out there if you don't want to. Your personal budget should work for you.
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